Seven million college students will take out federal student loans at 6.8% this fall under a rate hike that went into effect today.
A one-year extension on the current 3.4% rate has expired, and the rate on subsidized Stafford loans will double after the Senate stalemated over a compromise passed by the House. Then all the lawmakers were like, ‘Yay! Summer vacay!’
If nothing is done before the fall, students with new loans will pay an average of $2,600 extra over the life of a loan. The rate seems especially onerous at a time when mortgages are hovering around 4.5% and the government’s own cost of borrowing is about a quarter of a percent per year, thanks to long-term downward pressure by the Federal Reserve.
Proposed fixes include an idea from Senator Elizabeth Warren to cut student interest rates to the same as what banks pay to borrow, lowering them to 0.75%. Social entrepreneurs are on the case as well, with ideas to crowdsource student finance.
Here, a few other ideas on how to reduce student debt.